Market’s patience tested on Brexit, and Ocado boosts guidance as M&S venture makes strong start

“Everyone’s patience is really being tested with yet more delays to sorting out a UK/EU trade deal,” says Russ Mould, Investment Director at AJ Bell.

“The pound fell 0.8% against the euro to €1.1004 and down 0.7% against the US dollar to $1.3309.

“This reaction suggests the market is losing confidence in Boris Johnson being able to strike a deal and so currencies and equities are likely to be volatile for both today and tomorrow in anticipation of this weekend’s conclusion to the drawn-out negotiations.

“Of the stocks rising in the FTSE 100 index, the biggest contributors in terms of index points were all companies doing business around the world and therefore showing little sensitivity to what happens with UK trade negotiations. The key movers included oil producer Royal Dutch Shell and drinks group Diageo

“The combination of a weak pound and disappointing UK GDP figures weighed on banking stocks with Lloyds down 2.5%. The UK economy only grew by 0.4% in October with the economic recovery slowing before the second lockdown gripped England. It doesn’t bode well for November’s figures which may show a decline in GDP. “

"Many people are eagerly awaiting the covid-19 vaccine in hope that their lives will return to normal, yet the roll-out of the vaccine could be a slow process and the country’s economic recovery is unlikely to be smooth in 2021.”

Ocado

“During the height of lockdown it felt like Ocado could do no wrong. Running into capacity problems – just a sign of how in-demand its services are – facing legal action over warehouse technology patents – it’ll sort itself out.

“Now the story has switched to one of the market looking forward to a return to normality the opposite feels true with today’s delivery of an upgrade to guidance met with, at best, indifference.

“Perhaps this is because, while Ocado Retail (now a joint venture with Marks & Spencer) is the only contributor to earnings, the company’s story is really perceived to be all about its international business, signing contracts to provide an online grocery solutions to supermarkets all over the world.

“There may also be some concern over some reversion to the mean in the food market with online sales dropping off as we emerge from the pandemic, the average basket size is also down from the heights seen earlier in the year.

“It seems likely that factors such as convenience will enable this market to hold on to a good portion of the gains it has made as increasing numbers of people become comfortable with receiving their weekly shop this way. The pandemic accelerating a trend which was already in place, rather than creating a short-term fad for an online shop.

“The M&S product range also seems to be being received very well, which bodes well for the future of a business which may well take a bit of strategic backseat as far as the wider Ocado Group is concerned as it concentrates on its global ambitions.”

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